The present invention is directed to a system and method for controlling and securitizing the cash value growth and/or death benefits of a large group of insurance policies and, in particular, to a system and method that monitors death rates and interest rates in a large pool of policies and adjusts premium rates and death benefit levels in order to control cash value growth in the pool of policies and to generate cash flow from death benefits that may be securitized.
Life insurance policies are often purchased by companies for different purposes. For example, a company may purchase life insurance policies for its employees as a benefit of their employment, with death benefits going to the employee's beneficiaries. A bank may purchase life insurance policies on its borrowers with death benefits going to the bank at levels sufficient to cover the outstanding mortgage amounts.
Typically, companies also use the life insurance policies as an investment vehicle. Present corporate owned life insurance policies attempt to maximize positive cash value growth ("CVG"), thus increasing the cash value of the policies (as used herein, CVG is the difference between the cash value of the insurance policy and the basis of the insurance policy). CVG is maximized by simply keeping death benefits at a minimum. In some situations, however, large positive CVG can adversely affect a company's liquidity, and investment and business options due to regulatory limitations on the amount of investment they can have in life insurance. Thus, if an institution has a large number of life insurance policies to cover its borrowers or employees, as the CVG increases, the institution will have a limited number of borrowers or employees to remain in regulatory compliance. Alternatively, if the cash value is controlled, then more people may be insured.
Another disadvantage of large CVG is that if borrowers prepay their mortgages, the bank may want to exchange the insured of the life insurance policies covering the original borrowers to the new borrowers. Large CVG may have a significant adverse financial impact on the bank when it effects these exchanges.
Accordingly, there is a need for a system to manage the CVG of life insurance policies and to ensure that the insurance policies remain in regulatory compliance. Additionally, when the cash value of the policy is controlled and cash flow can be actuarially calculated to a high certainty and, in fact, the cash flow from the payment of death benefits can be controlled. The cash flow has a calculable value. Thus, it is desirable to have a computer system to monitor cash values in a large pool of insurance and to securitize at least a portion of the cash flow.